Advanced Financial Accounting & Reporting Finals

I. Partnership

On May 1, 2010, the business assets of John and Paul appear below:

John Paul
Cash P 11,000 P 22,354
Accounts Receivable 234,536 567,890
Inventories 120,035 260,102
Land 603,000
Building 428,267
Furniture & Fixture 50,345 34,789
Other Assets 2,000 3,600
Total P1,020,916 P1,317,002

Accounts Payable P 178,940 P 243,650

Notes Payable 200,000 345,000
John, Capital 641, 976
Paul, Capital 728,352
Total P1,020,916 P1,317,002

John and Paul agreed to form a partnership contributing their respective assets and equities
subject to the following adjustments:
a. Accounts receivable of P20,000 in John’s books and P35,000 in Paul’s are
uncollectible.
b. Inventories of P5,500 n P6,700 are worthless in John’s and Pail’s respective
books.
c. Other assets of P2,000 and P3,600 in John’s and Paul’s respective books are to
be written off.

1. The capital accounts of John and Paul, respectively, after the adjustments will be:
a. 614,476 683,052
b. 615,942 717,894
c. 640,876 712,345
d. 613,576 683,350

Solutions:
John: 641, 976 – 20, 000 – 5, 500 – 2, 000 = P 614, 476
Smith: 728, 352 – 35, 000 – 6, 700 – 3, 600 = P 683, 052

2. How much assets do the partnership have?

a. 2,317,918
b. 2,237,918
c. 2,265,118
d. 2,365,218

Solutions:
John: 1,020,916 – 20,000 – 5,500 – 2, 000 = P993,416
Smith: 1,317,002 – 35,000 – 6,700 – 3, 600 = P1, 271,702
Total: 2,337,918 – 55,000 – 12,200 – 5,600 = P2,265,118
3. DO is admitted into the partnership of RE and MI by investing cash equivalent to ¼ of
their capital. Which of the following is true after the admission of DO?
a. Assets of the partnership will increase
b. Total partners’ equity remains the same
c. RE and MI capital decreased by ¼
d. Assets of the partnership will remain the same

Partner Ae first contributed P50,000 of capital into existing partnership on March 1, 2016.
On June 1, 2016, said partner contributed another P20,000. On September 1, 2016, he
withdrew P15,000 from the partnership. Withdrawal in excess of P10,000 are charged to
partner’s capital accounts.
4. What is the annual weighted average capital balance of Partner Ae?
a. 32,500
b. 51,667
c. 60,000
d. 48,333

PP contributed P24,000 and CC contributed P48,000 to form a partnership, and they agreed
to share profits in the ratio of their original capital contributions. During the first year of
operations, they made a profit of P16,290; PP withdrew P5,050 and CC P8,000. At the start
of the following year, they agreed to admit GG into the partnership. He was to receive a
one-fourth interest in the capital and profits upon payment of P30,000 to PP and CC, whose
capital accounts were to be reduced by transfers to GG’s capital account of amounts
sufficient to bring them back to their original capital ratio.
5. How should the P30,000 paid by GG be divided between PP and CC?
a. PP - 9,825; CC - 20,175
b. PP - 15,000; CC - 15,000
c. PP - 10,000; CC - 20,000
d. PP - 9,300; CC - 20,700

6. In the AA-BB partnership, AA and BB had a capital ratio of 3:1 and a profit and loss ratio
of 2:1 respectively. The bonus method was used to record CC’s admittance as a new
partner. What ratio would be used to allocate, to AA and BB, the excess of CC’s
contribution over the amount credited to CC’s capital account?
a. AA and BB’s new relative ratio.
b. AA and BB’s new relative profit and loss ratio.
c. AA and BB’s old capital ratio.
d. AA and BB’s old profit and loss ratio.

The Grey and Redd Partnership was formed on January 2, 2016. Under the partnership
agreement, each partner has an equal initial capital balance. Partnership net income or loss
is allocated 60% to Grey and 40% to Redd. To form the partnership, Grey initially
contributed assets costing P30,000 with a fair value of P60,000 on January 2, 2016, and
Redd contributed P20,000 cash. Drawings by the partners during 2016 totaled P3,000 by
Grey and P9,000 by Redd. The partnership net income in 2016 was P25,000.

7. Under the goodwill method, what is Redd’s initial capital balance in the partnership?
a. 20,000
b. 25,000
c. 40,000
d. 60,000
8. Under the bonus method, what is the amount of bonus?
a. 20,000 bonus to Grey
b. 20,000 bonus to Redd
c. 40,000 bonus to Grey
d. 40,000 bonus to Redd

X and Y are in partnership, sharing profits equally and preparing their accounts to 31
December each year. On 1 July 2015, Z joined in the partnership, and from that date profits
are shared X 40%, Y 40%, and Z 20%.

In the year ended 31 December 2015, profits were:

6 months to 31 June 2015 P200,000
6 months to 31 December 2015 P300,000

It was agreed that X and Y only should bear equally the expense for a bad debt of P40,000
written-off in the six months to 31 December 2015 in arriving at the P300,000 profit.

9. Which of the following correctly states X’s profit share for the year?
a. 216,000
b. 200,000
c. 220,000
d. 224,000

The AA, BB, CC Partnership was formed on January 2. 2019. The original cash investments
were as follows:
AA 48,000
BB 72,000
CC 108,000
According to the general partnership contract, the partners were to be remunerated as
follows:
a. Salaries of P72,000 for AA, P6,000 for BB, and P6,800 for CC.
b. Interest at 12% on the average capital account balances during the year.
c. Remainder divided 40% to AA, 30% to BB, and 30% for CC.

Income before partners’ salaries for the year ended December 31, 2019, was P46,040. AA
invested an additional P12,000 in the partnership on July 1; CC withdrew P18,000 from the
partnership on October 1, and, as authorized by the partnership contract, AA, BB, and CC
each withdrew P375 monthly against their shares of net income for the year.

10. Determine the share of partner AA in the net income:

a. 18,416
b. 17,616
c. 13,080
d. 5,880

11. Determine the capital balance of partner CC on December 31, 2019:

a. 108,770
b. 104,270
c. 100,112
d. 99,312
12. If the salaries to partners are to be recognized as operating expenses by the
partnership, what amount is the share of partner BB in the net income?
a. 18,416
b. 14,190
c. 8,190
d. 7,812

The following condensed balance sheet is presented for the partnership of Axel, Barr, and
Cain, who share profits and losses in the ratio of 4:3:3, respectively:

Cash 100,000
Other assets 300,000
Total 400,000
Liabilities 150,000
Axel, Capital 40,000
Barr, Capital 180,000
Cain, Capital 30,000
Total 400,000

The partners agreed to dissolve the partnership after selling the other asset for P200,000.

13. Upon dissolution of the partnership, Axel should have received

a. 0
b. 40,000
c. 60,000
d. 70,000

JJ and KK are partners who share profits and losses in the ratio of 60% and 40%
respectively. JJ’s salary is P60,000 and P30,000 for KK, the partners are also paid interest
on their average capital balances. In 2012, JJ received P30,000 of interest and KK, P12,000.
The profit and loss allocation is determined after deductions for the salary and interest
payments.

14. If KK’s share in the residual income (income after deducting salaries and interest) was
P60,000 in 2012, what was the total partnership income?
a. 192,000
b. 345,000
c. 282,000
d. 387,000

The balance sheet of the partnership of Salve, Galo and Norma, who share in the profits and
losses in the ratio 5:3:2, respectively is as follows:
Assets Liabilities & Capital
Cash 30,000 Liabilities 50,000
Other Assets 320,000 Salve, capital 80,000
Galo, Capital 115,000
Norma Capital 105,000
Total 350,000 Total 350,000
The partnership is liquidated by installment. The first sale of non-cash assets with a book
value of 150,000 realizes 100,000.

15. How should the remaining be distributed?

Salve Galo Norma
a. 50, 000 30, 000 20, 000
b. 40, 000 24, 000 16, 000
c. 0 31, 000 49, 000
d. 0 48, 000 32, 000

Solutions:

II. Corporate Liquidation

A review of the assets and liabilities of G Company in bankruptcy on June 30, 2008,
discloses the ff:

a. A mortgage payable of P118,000, is secured by building valued at P39,000 less than its
book value of P172,000.

b. Notes payable of P57,000 is secured by furniture and equipment with a book value of
P76,000 that is 3/5 realizable.

c. Assets other than those referred to have an estimated value of P44,000, an amount that
is 75% of its book value

d. Liabilities other than those referred to total P91,000, which included claims with priority
of P23,000.

16. How much was paid to the partially secured creditors?

a. 118,000
b. 23,000
c. 30,831
d. 50,769

17. How much was paid to the fully secured creditors?

a. 118,000
b. 23,000
c. 30,831
 d. 50,769

18. How much was paid to the priority creditors?

a. 118,000
b. 23,000
c. 30,831
d. 50,769

19. How much was paid to the unsecured creditors?

a. 118,000
b. 23,000
c. 30,831
d. 50,769

Solutions:
Assets
APFSC-FSC 15,000
Unpledged Assets 44,000
Total Free Assets 59,000

Liabilities Unsecured Priority Deficiency

PSC-APPSC 11,400
Unsecured Creditors 68,000
Priority Creditors 23,000
79,400 23,000 (43,400)

Recovery Rate = Available Assets / Unsecured Creditors

Recovery Rate = (59-23) / 79.4
Recovery Rate = 0.45

Fully Secured Creditors = 100% of amount owed FSC 118,000

Priority Creditors = 100% of amount owed to Priority Creditors 23,000
Partially Secured Creditors = 100% of APPSC + ((PSC-APPSC) x Rec. Rate) 50,769
Unsecured Creditors = 100% of amount owed to Unsecured Creditors x Rec. Rate 30,831

The accountant of Drifting Corp. prepared a statement of affairs. Assets which there are no
claims or liens are expected to produce 700,000. Unsecured claims of all classes totaled to
1,050,000. The ff. data claims deemed outstanding:
 Accrued salaries 15,000
 Unrecorded note for 10,000 on which 600 of interest has accrued held by
Normandy Co.
 A note for 30,000 secured by 40,000 receivable estimated to be 60%
collectible held by Jones Co.
 A 15,000 note on which 300 interest has accrued held by James Pty. Property
with a BV of 10,000 and MV of 18,000 is pledge to guarantee payment of
principal and interest.
 Unpaid income taxes of 35,000
20. What is the total free assets?
a. 1,050,000
b. 700,000
c. 650,000
d. 1,000,000

21. What is the amount realized by partially secured creditors?

a. 10,600
b. 19,500
c. 24,900
d. 27,900

Solutions:
(Free assets- unsecured with priority) ÷ unsecured claims without priority= percent of recovery
(700 000 – 50 000 ) /1000 0000= 65 %

Realizable amount of AR( 60% x 40 000) 24 000

Add unsecured portion (30 000-24000)x 65% 3 900
27 900

22. In the accounting statement of affairs, the gains or losses upon liquidation would equal

a. net book value of assets minus book value of liabilities

b. the book value of assets minus their realizable value
c. total estimated realizable value of assets minus the amount assigned to secured
creditors
d. total estimated realizable value of assets minus the amount remaining for Class 7
unsecured creditors

Manila Company filed a voluntary bankruptcy petition of June 1,2013 and the statement
of affairs reflects the following amounts:

Assume that the assets are converted into cash at the estimated realizable values and
the business is liquidated.
23. How much is the estimated amount to be paid to unsecured
creditors?
a. 60,000
b. 90,000
c. 100,000
d. 84,000

Solutions:
Partially secured creditors:
Assets pledged P60,000
Unsecured (40,000 x 60%) 24,000
Estimated amount received P84,000

Estimated recovery percentage:

Total assets at realizable values P390,000
Less: Priority claims
Fully secured liability P130,000
Liabilities with priority 20,000
Partially secured creditors (secured portion) 60,000 210,000
Amount available to unsecured liabilities P180,000

Unsecured creditors:
Partially secured liabilities (unsecured portion) P40,000
Unsecured creditors 260,000
Total P300,000

Estimated recovery % (P180,000 / P300,000) 60%

The following data were taken from the statement of affairs of Sweet Company.

Estimated liabilities with priority P122,500

Stockholder’s equity 441,000
Estimated liquidation expense – unrecorded 55,125
Unsecured liabilities without priority 1,102,500
Loss on realization of assets 551,250

24. How much is the total free assets?

a. 1,059,625
b. 937,135
c. 992,250
d. 953,575

Solutions:
Unsecured liabilities without priority P1,102,500
Loss on realization of assets 551,250
Estimated liquidation expenses - unrecorded 55,125
Stockholders’ equity (441,000)
Unsecured liabilities with priority 122,500
Total free assets P1,059,625
25. The document used to estimate amounts available to each class of claims is called a(n)
a. Statement of Assets and Liabilities
b. Legal Statement of Affairs
c. Accounting Statement of Affairs
d. Statement of Realization and Liquidation

A review of the assets and liabilities of the Cialis Company in bankruptcy on June 30,
discloses the following:
 A mortgage payable of P350,000 is secured by land and buildings valued at
P560,000
 Notes payable of P175,000 are secured by equipment valued at P140,000
 Assets other than those referred to, have an estimated value of P157,500
 Liabilities other than those referred to, total P420,000, which included claims
with priority of P52,500

26. What is the estimated deficiency to unsecured creditors?

a. 414,000
b. 402,000
c. 87,500
d. 35,000

Solutions:
Unsecured notes payable (P175,000 – P140,000) P35,000
Unsecured liabilities 420,000
Total 455,000
Free assets (P210,000 + P157,500) 367,500
Estimated deficiency to unsecured creditors P87,500

The accountant of Holy Company under liquidated provided the following data:

Assets at book value 100,000

Assets at net realizable value 75,000
Liabilities at book value:
Fully secured mortgage payable 40,000
Unsecured accounts and notes payable 45,000
Unrecorded liabilities:
Interest on bank notes 250
Administrative expenses 4,000

A trustee is appointed to liquidate the company.

27. The entry made by the trustee to record the assets and liabilities should include estate
equity of:
a. 14,250
b. 14,000
c. 10,250
d. 10,520

28. Using the data in No. 27, what is the estimated deficiency to unsecured creditors?
a. 35,000
b. 31,000
c. 14,250
 d. 10,000

Solutions:
Net assets recorded at book value (P100,000 – P85,000) P15,000
Loss on realization (P100,000 – P75,000) (25,000)
Unrecorded liabilities and expenses (P4,000 + P250) (4,250)
Estimated equity (deficit) P(14,250)

Assets at realized value P75,000

Fully secured mortgage (40,000)
Estimated administrative expenses (4,000)
Free assets 31,000
Unsecured claims (P45,000 + P250) (45,250)
Estimated deficiency to unsecured creditors P(14,250)

Lucky Company has filed for liquidation. The following data is available:

Free assets at net realizable value 100,000

Liabilities per books (unsecured) 160,000
Unrecorded liabilities:
Liquidation expenses 6,000
Unpaid wages with priority claim 10,000

29. What percentage of their claims should be unsecured creditors receive in liquidation?
a. 62.5%
b. 56.82%
c. 55.29%
d. 52.5%

Solutions:

Free assets P100,000

Less: Priority claims
Liquidation expenses P6,000
Unpaid wages 10,000 16,000
Net free assets P84,000
Divided by unsecured liabilities ÷ 160,000
Recovery percentage 52.5%

Sayap Company signed a note payable to its bank for P2,000,000. Accrued interest on
the note on February 29,2008 amounts to P50,000. The note is secured by inventory
with a book value of P2,300,000. The inventory is sold for P1,600,000 and unsecured
creditors receive 3% of their claims.

30. What amount should the bank receive in settlement of the note and interest?
a. 2,050,000
b. 2,000,000
c. 1,705,000
d. 1,600,000
Solutions:

Proceeds for inventory P1,600,000

Unsecured note balance and interest at 30%
[(P300,000 + P50,000) x 30%] 105,000
Payment to bank in settlement of note and interest P1,705,000
 III. Home Office and Branch Accounting

31. Analyze the following statements.

I. At the end of an accounting period, the balance of the Investment in Branch
ledger account may not agree with the balance of the Home Office account.
II. It is acceptable that the fiscal year for the home office does not coincide with
the fiscal year for the branch.
a. Statement I is correct. Statement II is incorrect.
b. Statement I is incorrect. Statement II is correct.
c. Statements I and II are both correct.
d. Statements I and II are both incorrect.

32. When billing at retail sales price, which of the follow ing is incorrect?
a. Branch statements may be prepared and submitted to the home office.
b. If the branch is billed for goods at the sales price, the branch cost of goods sold
will not be equal to sales, and branch activities will show a loss from operations
equal to the expenses of operation.
c. The home office, when informed of branch sales currently, is provided with a
continuous record of the goods in the hands of the branch.
d. The statements above are all true.

Coronation Corporation established its Pampanga branch in 20x9. Merchandise costing

120,000 is shipped to this branch. During the initial year, the home office acquires an
equipment for 80,000 to be carried in the branch books, and the branch maintains physical
possession and use. The equipment has a useful life of 4 years. The branch sells 60 percent
of the inventory for 100,800 on account and subsequently collected half of the amount. The
branch remits 80 percent in cash to the Home Office.

33. What is the correct Home Office account balance on the

records of the branch?
a. 79,680
b. 139,680
c. 200,000
d. 159,680

Solution:
Shipment of merchandise to home office P 120,000
Equipment carried by the branch 80,000
Cash remittance to home office (100,800*1/2*80%) (40,320)
Home office account balance P 159,680

On January 01, 2020 Kindness Company, Inc. establishes a branch in Bulacan. During the
year, Kindness, Inc. transfers cash and merchandise to the branch worth P15,000 and
P45,000, respectably. Freight was paid by the home office worth P1,500 included in the cost
of merchandise. The home office also incurred P5,700 expenses of which 30 percent was
allocated to the branch. On December 31, 2020, the branch incurred a loss of P4,000.
34. What is the balance of the branch account as per home office books?
a. 56,210
b. 54,500
c. 57,710
d. 56,000
Solution:
Cash shipped to the branch P15,000
Merchandise shipped to the branch
(excluding freight) 43,500
Expenses allocated to the branch 1,710
Loss incurred by the branch (4,000)
Investment in Branch Account Balance P56,210

35. In accounting for branch transactions, it is improper for the home office to:
a. Credit cash received from a branch to the Investment in Branch ledger account.
b. Maintain Common Stock and Retained Earnings ledger accounts for only the
home office.
c. Debit shipments of merchandise to the branch from the home office to the
Investment in Branch ledger account.
d. Credit shipments of merchandise to the branch to the Sales ledger account.

36. A journal e ntr y debiting Cash in Transit and crediting Investment in Branch is
required for:
a. The home office to record the mailing of a check to the branch early in the
accounting period.
b. The branch to record the mailing of a check to the home office early in the
accounting period.
c. The home office to record the mailing of a check by the branch on the last day of
the accounting period.
d. The branch to record the mailing of a check to the home office on the last day of
the accounting period.

Your examination of the accounts revealed the following information:

1. On December 28, the branch remitted 12,500 in cash to the home office that was not
received until January 4.

2. Merchandise that was billed to the branch at 7,500 was in transit at December 31.

3. The branch failed to take up a 1,200 credit memo from the home office representing the
cash collections.

4. The branch returned damaged merchandise worth 3,000 but the home office recorded it
as 13,000

5. The unadjusted balances in the home office and branch books are 23,140 and 14,340,
respectively.

37. What is the adjusted balance of the reciprocal accounts on December 31, 2020?
a. 21,840
b. 20,640
c. 10,640
d. 8,140
Solution:

38. The home office ships merchandise to the branch at 25 percent above cost. How should
a shipment costing P120,000 be recorded by the branch?
a. Investment in Branch 120,000
Allowance for overvaluation of Br. Inv. 30,000
Shipments to Branch 150,000
b. Shipments from Home Office 150,000
Home Office 150,000
c. Shipments from Home Office 120,000
Home Office 120,000
d. Investment in Branch 150,000
Allow. for overvaluation of Br. Inv. 30,000
Shipments to Branch 120,000

Solution: Billed price

120,000 + 30,000 = 150,000

Matthew Corporation has a branch in Cavite. During 2021, the home office shipped to the
branch supplies costing P156,000 at a billed price of 30% above cost. The inventories of
supplies at the branch were as follows: January 1, 2021 P110,000; December 31, 2021
128,000. On December 31, 2021, the home office holds inventories of P112,800 which
includes P11,500 held on consignment and which excludes P5,000 inventories out on
consignment.

39. How much is the inventories in a combined balanced sheet as of December 31, 2021?
a. 226,300
b. 292,800
c. 237,800
d. 227,800

Solution:
Inventories:
Branch (156,000x100/130) 120,000
Home Office (112,800-11,500+5,000) 106,300
Combined Inventories 226,300

40. Refer to no. 39, if the sales of the branch were P165,600 and it incurred 43,000
expenses. As far as the home office is concerned, what is the net income (loss) of the
branch for December 2021?
a. 5,400
b. 115,400
c. (30,600)
d. (5,400)
Solution:
Sales P 165,600
Less: Cost of goods sold
Inventory, January 1 110,000
Shipments from home office 120,000
Goods available for sale 230,000
Less: Inventory, December 31 (112,800) (117,200)
Gross Profit 48,400
Expenses (43,000)
Net Loss (P5,400)

Matatalo Tayo Ventures operates a branch in Cebu City. Selected accounts taken from the
May 31, 2016 statements of Matalo Tayo and its branch follow:
Home Office Branch

Sales 380,000 353,000

Shipments to branch 150,000 -

Shipments to branch-loading 39,500 -

Inventory, June 1, 2015 24,000 16,000

Purchases 300,000 60,000

Shipments from home office - 187,500

Inventory, May 31, 2016 28,000 20,700

The branch ending inventory included items costing P8,700 that were acquired from
outside suppliers.

41. What is the realized markup on branch merchandise that would be recognized by the
home office?
a. 39,500
b. 37,500
c. 37,100
d. 39,100

On December 1, Philip Company opened a branch in Cebu to which merchandise billed at

30,000 was shipped. During the month, additional shipments were made at billed prices of
12,000. During December, Cebu branch returned merchandise that was defective and
received credits of 750 on the returns. At the end of the month, the branch records its
inventory at 18,500, which is from the following sources:

Merchandise acquired from home office at billed price P 16,500

Merchandise acquired from outsiders 2,000

Total inventory P 18,500

 A branch loss for December is calculated at P 2,600. The home office has followed the
practice of billing the branch at 20% above merchandise cost.

42. What is the balance of the allowance for overvaluation of branch inventory at
December 31, before adjustments?
a. 4,125
b. 6,875
c. 7,000
d. 6,785

43. What is the net income (loss) of the branch in so far as the home office is concerned?
a. 2,600
b. (1,525)
c. 1,525
d. (2,600)

REH Textile Company has a single branch in Zambales. On March 1, 2018 the home office
accounting records included an Allowance for Overvaluation on Inventories Zambales Branch
Ledger account with a credit balance of 32,000. During March, merchandise costing 36,000
was shipped to the Zambales Branch and billed at a price representing a 40% mark up on
the billed price.

On March 31, 2018, the branch prepared an income statement indicating a net loss of
11,500 for March and ending inventories at billed prices of 25,000.

44. What is the amount of adjustment for Allowance for Overvaluation on Inventories to
reflect the true branch net income?
a. 39,257 debit
b. 46,000 credit
c. 39,333 debit
d. 46,000 debit

45. What is the reason for the understatement of the net income reported by the branch in
its separate income statement?
a. Overstatement of cost of goods sold reported by the branch due to goods
acquired from the home office
b. Overstatement of cost of goods sold reported by the branch due to goods
acquired from the branch
c. Overstatement of ending inventory reported by the branch due to goods acquired
from the home office
d. Overstatement of purchases reported by the branch due to goods acquired from
the home office